Wednesday, June 17, 2009

Morning Update/ Market Thread 6/17

Good Morning,

Futures are down a little this morning, bonds are up and the dollar is down. Here’s the DOW and S&P overnight action:

The big economic data this morning is the CPI reading. It came in very similarly to the PPI numbers yesterday, below the inflation reading expected, slightly higher month over month, but lower still year over year which is the reading that matters. EconoPRAY flat out said this reading was good for the Fed and good for bonds. Whoever is writing those reports is insane, so here’s what CNN said about it, hello, the most deflationary reading in 59 years:
Consumer price index: Largest drop in 59 years

Key measure of inflation fell 1.3% over past 12 months, the sharpest drop since April 1950.

NEW YORK ( -- A key index of prices paid by consumers showed the largest year-over-year decline since April 1950, primarily due to sinking energy prices, the government said Wednesday.

The Consumer Price Index, the Labor Department's key measure of inflation, has fallen 1.3% over the past year. That's the largest decline in nearly 60 years, and is due mainly to a 27.3% decline in the energy index.

On a monthly basis, CPI rose 0.1% in May, after remaining flat the previous month. Economists surveyed by expected a 0.3% increase.

The even more closely watched core CPI, which excludes volatile food and energy prices, increased 1.8% on an annual basis.

Core CPI rose 0.1% in May compared with April, matching forecasts.

Index-by-index: The indexes for shelter, new and used motor vehicles, and medical care posted increases in May. Energy -- which had declined the previous two months -- also rose, climbing 0.2%.

Many other indices slipped. The food index decreased for the fourth consecutive month with a decline of 0.2%.The tobacco and smoking products index fell 0.3% in May after rising sharply in the two months prior. The increase in March and April was due to an increase in the federal tax.

The indexes of public transportation and apparel also fell.

Here’s a chart from Econoday:

Again, this is getting very close to a deflationary spiral. Despite the Fed’s QE and all the other “stimulus” prices continue to fall in a historic collapse. That’s exactly what happens on the backside of parabolic curves.

And for those greenshoot tokers who didn’t pay attention to the bond market, here’s the result:
MBA's purchase applications fell back a disappointing 3.5 percent in the June 12 week to 261.2. The refinance index fell back very sharply, down 23 percent to 2,605.7. Both reflect the dampening effect of rising interest rates along with still limited credit availability. Mortgage rates dipped back in the latest week but still remain much higher than a month ago, about 75 basis points higher for 30-year loans which averaged 5.50 percent in the latest week. Yesterday's strong gains in housing starts were a big plus, but sagging mortgage applications and indications of limited buying interest in Monday's housing market index point to disappointing home sales data at month end.

Refinance index down 23% in one month!

And we also got the Current Account Deficit for the first quarter. It came in lower than expected which is good from the longer term perspective of not over-consuming, but it is another clear indication that exports and imports are falling in an overall general depressed environment. Again from Econoday:
The nation's current account gap narrowed dramatically in the first quarter, to $101.5 billion vs. a revised $154.9 billion in the fourth quarter ($132.8 billion gap first reported). But the improvement reflects the drop in domestic demand for foreign products as the balance on goods improved by more than $50 billion to -$124.0 billion. The gap in the current account represented only 2.9 percent of GDP, the lowest rate in 10 years and what is a silver lining of sorts for the recession. But an easing outflow of dollars is a definitely plus for the dollar which rose in immediate reaction to the data.

This is still money that must ultimately be financed. Foreign governments and investors see how riddled with debt we are and now want higher interest rates for that debt.

I think the past two day’s worth of economic data is a great lesson in how all these data points are connected and how they all are influenced by the massive overhang that is our debt. So many people didn’t understand even before the market melted down in late ’07 and in ’08, and they STILL don’t understand which is simply amazing to me. I guess that’s all part of the Economic Mass Psychosis and why nothing ever moves in a straight line.

Despite what I see here as nothing but bad news, stocks are very oversold in the short timeframes and could bounce at any point in time. We’re also, however, getting to that point where we could keep descending in oversold conditions, too. So the ultimate destination for equities is lower but it may not get a lot lower today so be careful.

Have a good day,


David Bowie – Ashes to Ashes: